A company had a Liquid Ratio of 1.5 and Current Ratio of 2 and Inventory Turnover Ratio 6 Times. It had total Current Assets of Rs. 8,00,000 in the ye
A company had a Liquid Ratio of 1.5 and Current Ratio of 2 and Inventory Turnover Ratio 6 Times. It had total Current Assets of Rs. 8,00,000 in the year 2003. Find out Revenue from Operation (Net Sales) if goods are sold at 25% profit on cost.
1 Answers
Current Liabilities = Rs. 8,00,000/2 = Rs. 4,00,000
Quick Assets = Rs. 4,00,000 `xx` 1.5 = Rs. 6,00,000
Inventory = Current Assets - Quick Assets = Rs. 2,00,000*
*It is presumed as Average Inventory because there is no information of Opening and Closing Inventories.
Inventory Turnover Ratio = `(overset("Cost of Revenue from Operation, i.e.,")("Cost of Good Sold"))/("Average Inventory" (Rs. 2,00,000))` = 6 (Given)
Cost of Revenue from Operation, i.e., Cost of Goods Sold = Rs. 12,00,000
Profit = 25% of Rs. 12,00,000 = Rs. 3,00,000
Revenue from Operation, i.e., Net Sales = Cost of Revenue from Operation, i.e., Cost of Goods Sold + Profit
= Rs. 12,00,000 + 3,00,000 = Rs. 15,00,000.